Imperial Capital’s Robert Rosenhaus explains what Skullcandy is doing right:

With new leadership in place, Skullcandy is in the midst of refocusing its brand and improving its operations with the goal of driving market share in the youth audio marketplace and realizing increasing profitability over time. While near-term performance could prove challenging as initiatives are implemented, we believe the Skullcandy brand remains compelling with a distinct brand image that resonates well within its core youth customer base, offering the opportunity for longer-term growth…

In 2014, Skullcandy will enter the women’s and sports performance categories for the first time. On the women’s side, we believe the company will be prudent in choosing its distribution channels to ensure the Skullcandy brand is well showcased. That said, we do not believe the women’s business will have a significant impact on sales or EPS this year, but rather mark an entry point ahead of future growth. The sports performance line will launch in the summer, in our view, and will include new retail channels that better suit this product category. In 2Q14, Skullcandy will also enter [Wal-Mart (WMT)] with its entry level priced products, including ear buds under $20 and headphones under $35 with limited testing of some higher price points as well.

Rosenhaus raised his price target to $9 from $7, which isn’t much considering where Skullcandy is trading right now. Its shares have gained 6.9% to $9.87, while Wal-Mart has dropped 0.5% to $74.20.

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